Financial Times Interview: Behavioral Apathy

Murray Coleman recently interviewed Lee Munson on his views regarding behavioral coaching.

 Everyone can use a coach

Everyone can use a coach

“Behavioral coaching is almost a lost art — too many advisors see it as crossing a line between acting like an amateur psychologist and serving as a trusted financial pro,” says Lee Munson, chief investment officer at Portfolio Wealth Advisors in Albuquerque, N.M., which manages $250 million.

Clearly, the industry sees behavior as the biggest threat to an investment plan, but why do many advisors ignore or fear this essential element? Lee Munson has a theory that most advisors were simply stockbrokers that are RIAs (Registered Investment Advisors) in name only. Most want to continue to pick high priced mutual funds and ignore the very reason people seek a world-class financial advisor. But, does holistic planning cross the line of an advisor’s skill set?

 You don't have to be a doctor to be a great coach.

You don't have to be a doctor to be a great coach.

“You don’t have to be trained as a psychologist to become a good coach,” says advisor Munson, who considers himself a student of behavioral finance. “You just need a real desire to find out what people truly want to do with their money and how they see it affecting their lives.”


Finding Value

It's a question as old as, well, as old as the profession.  What is the value of a financial advisor?  

First, it’s important to understand what a financial advisor is. A true financial advisor takes a comprehensive, holistic view of your entire financial portrait, including investments, tax planning, debt, cash flow, insurance, college planning, estate planning, and more. 

These elements are essential to your financial life and should work together. You may have a great investment strategy, but if you’re not saving any money it won't matter. Or, mistakes in designating beneficiaries on your IRA or 401K accounts could materially increase taxes for your children.  Focusing only on investments is not taking a holistic view of your situation.

Many people think a financial advisor is a stock picker or someone who sells investment products that may or may not be in the best interests of the client. True financial advisors perform a more transparent, holistic and client-centered role.

The vast majority of people want and need advice but don't want to pay for it.  So, at what point does not spending money actually end up costing you money?  


A true financial advisor can help you:

  • Stick to an investment plan
  • Track contributions and withdrawals from accounts, compare them with your goals and help you reach or exceed those targets.
  • Adjust your investment strategy accounting for life changes such as buying a house or starting a new job.
  • Determine when and how to claim Social Security benefits.
  • Maximize financial or tax aid when your children go to college.
  • Determine how much life insurance you should have.
  • Use tax planning to determine which accounts to save in during your working years and withdraw from during retirement.
  • Allocate assets across all your accounts and rebalance your portfolio regularly.
  • Minimize taxes after your death by assisting with the proper beneficiaries titled on your retirement accounts.
  • Review all accounts regularly to optimize your financial situation.


When your values are clear to you, making decisions becomes much easier.   



When the Golden Years are Interrupted with Death

It happens to us all eventually.  Death.  But how do you cope and make the transition to widowhood without financially jeopardizing your lifestyle?  It may be unpleasant and even uncomfortable but couples who make time to discuss contingencies before their partners death, make this transition easier for the surviving spouse.  Here are a few things to consider: 

The probate process: 

Because all assets transfer upon death, knowing and deciding how these assets are titled is crucial in making sure they are properly designated to avoid probate.  Probate is an expense that can easily be avoided with a few simple planning steps.


Assess your cash flow:

It is common to want to make a large purchase, like a long vacation or give generously to children or grandchildren but before you do, take the time to look at your finances.  Its vital to consider the impact this could have on your future finances.  


Your own network:

Your family will no doubt be there for emotional support but you will need to consider who will be there for your financial support.  This network should include an estate planning attorney as well as a financial advisor.  Both will be essential with helping to objectively navigate your future with their expertise. 


Updating accounts:

Beneficiary and ownership information will need to be amended.   This is something oftentimes overlooked but there could be significant repercussions if the desired changes are not made.


The death of a spouse is easily one of the most devastating events a person will experience and particularly stressful for the surviving spouse who may not have played an active role in the household finances. An open dialogue and a plan can lessen that burden.  Be proactive! 

Raiding Your Retirement Fund

It can happen to anyone.  You have an unexpected expense, you find “the deal of a life time” or you might even lose your job.   The bottom line is you need cash and you need it now.   Where do you turn?   Should you consider exhausting your long-term goals with your short term needs?  The simple answer is no and here’s why.  

Although you may be able to take “hardship” withdraws from your retirement plan with certain IRS-approved hardship situations, such as medical bills, they come at a high cost.   You’ll owe income tax on any pretax money you withdraw in addition to federal penalties and possibly state penalties if you are under 59 1/2.

Some plans may even allow you to borrow money and although it may be at a lower interest rate than a credit card, it could also trigger fees and you may be required to pay back the full amount if you left your job. 

The solution is to plan in advance and ensure you have an emergency fund for these situations. The best options are to have a savings account that contains 3 to 6 months of living expenses or if you own a home set up access to a Home Equity Line of Credit. If you haven’t planned in advance for those two options, a zero balance credit card you keep on hand that has a $3,000 to $5,000 limit is good to use for emergencies. With this, you may pay interest but you won’t need to consider tapping your retirement fund and paying the tax and penalties.  Best yet, you avoid the pitfall of spending your future prematurely.

If you haven’t planned in advance, it still makes sense to borrow money from friends or family to cover your emergency.  You can let them know you have retirement funds should your emergency make it impossible to make payments in a timely manner.  The important thing is make raiding the retirement fund the last option you consider and you will be glad you did in the years to come.


What should I make sure is included in our rent to own deed?


Tomorrow, I'm signing the contract for our rent to own home. We are paying $4,000 down and $470 a month for 72 months. What should I make sure is included in the contract to confirm that when I'm done paying down the rent, the home is ours?


The best rule of thumb is to read the contract thoroughly and make sure it says this clearly to you.  If it does not say it in language you understand, then ask the person creating the contract to add a paragraph of your own that clearly states the objective in words you do understand.  They should have no problem adding a paragraph written by you stating the ultimate objective if the contract already makes the same confirmation in other language.

Difference between CDs & IRAs

What's the difference between an individual retirement account (IRA) and a certificate of deposit (CD)?


An individual retirement account (IRA) is a type of account.  A certificate of deposit (CD) is a type of investment.  Therefore you could open an IRA Account, deposit funds into this account and then buy a CD in the account.  If you have a CD at a bank or brokerage firm and want to use the money to make your deposit into an IRA, you would have to cash it out first, put the money into the IRA and then buy a new CD.

Q&A - Mortgage Debt

I've come into a large amount of money. Should I invest it or pay off my mortgage?


There are about 20 questions I would want to ask you before answering this question because based on what I know the answer is "It depends!"  In general, my experience tells me it is good to have a mortgage on a home when the interest rate is 5% or less. If buying, keep the loan at about 40% to 75% of the value. This way you start out with at least 25% equity and you borrow at least 40%. Having a mortgage has never been a concern for my clients who have investable assets and who know how to manage their budget to not spend more than they make. Even a conservative investment plan should net you at least 5% on an annualized basis over 20 to 30 years so the worst case is you break even on mortgage interest versus investment income.  Also, this does not take into account a potential tax deduction advantage from mortgage interest.  You also get to pay for a real (and appreciating) asset 10 to 25 years out in the future using todays' dollars.  Think about that.  It's more meaningful than you realize.  The fact of investing is that money makes money and it can help you make payments and deal with emergencies and opportunities.  Owning a home outright does none of that.

Q&A - Difference Between Savings Account and Roth IRA

What is the difference between a savings account and a Roth IRA?


A savings account is typically a generic term for any account that a person uses to accumulate funds for a future goal such as retirement, education or home purchase.

A Roth IRA is type of savings account that allows a person to save funds for a future goal but with a twist.  The earnings and growth on the savings are not taxed if they are withdrawn within certain guidelines.  The Roth IRA is an excellent savings account vehicle for anyone who qualifies to contribute to a Roth IRA. The first qualification is that you have earned income.  That is, income that comes from a job as opposed to an investment or pension.  The second qualification is that you do not make too much money. Check with a Federal Income Tax reference guide to see what the income limitations are for any year you are deciding to contribute.

Q&A - Inheriting a Significant Pension

How should my mother plan to secure and maximize her inheritance of a significant pension?


My brother in law recently passed away leaving a reasonable (~$250K pension) to his mother. He died before starting benefits. She is 76 years old. She has never had much money. Her family would like for her to enjoy the full benefit of this money while she is alive. She is also the beneficiary of a $225K life insurance policy. What are the best options available for the pension portion of the inheritance? My mother in law stated that she would like to be able to spend the money and leave the balance upon her death to her remaining living children. Any advice?



It sounds like your mother in law was well loved by her son. I will assume that by "pension" you mean a monthly benefit amount that is not a lump sum amount nor can be rolled into a lump sum amount.  If that is the case, your mother in law will be restricted by the rules of the pension plan as to how much she can take and how and when.  If the intention is to enjoy the money, then take it as soon as possible, withhold enough to pay the tax due so there will not be a tax burden for her come April.  The Life Insurance proceeds could be invested to leave for her heirs.

If by "pension" you mean a retirement account that can be taken as a lump sum then your mother in law will have more flexible options in how she takes the money.  She could cash it all in, pay the tax and then use the funds to pay off a mortgage, gift money to her other children or charities, go on a world cruise or anything she desires. She could also work with a qualified CFP certificant to determine how much monthly income she could take to enjoy an enhanced lifestyle, pay taxes and then have a nice balance to leave to her remaining children.

With the total amount of money your mother in law inherited, part of which is already tax friendly (Life Insurance proceeds), she could easily create a  $1,800 to $2,500 a month of income without sacrificing a nice balance to leave to heirs.

Financial Times Interview of Lee Munson

The Financial Times recently interviewed Lee Munson regarding the Department of Labor’s new fiduciary rule that is pushing ahead with a new share class of mutual funds called T-shares. 

T-shares are a hoax – I’m horrified that people are being put into these funds,” says Lee Munson, chief investment officer at Portfolio Wealth Advisors in Albuquerque, N.M., which manages more than $250 million.


Lee didn’t stop there, further on he told Murray Coleman how the flat-rate structure wasn’t cutting it.

This is like trying to charge the same price for a Honda Civic as a Lexus sedan.
 It's still a Honda, folks

It's still a Honda, folks

Ultimately, this is a overt loophole that allows stockbrokers, or those that sell financial products versus providing financial advice, to circumvent the new rules.

How does Portfolio Wealth Advisors plan to address the new fiduciary rules that require advisors to work in clients' best interest when working with retirement accounts?

We don’t have to do a thing. Portfolio Wealth Advisors always acts as a fiduciary for our clients. So, while stockbrokers prepare for more regulation to protect their rights to NOT work in your best interests and charge high commissions for dubious so-called products, we continue to do the right thing for clients just like we have since the beginning.